First, a few facts:
- Yesterday’s trading was volatile: After an initial climb, the Dow fell more than 900 points before recovering in the final 15 minutes—with no obvious catalyst—to finish down 1% for the day.
- The S&P 500 has fallen in 16 of the 21 sessions this month, the most in a single month since October 2008. A 17th dip would be its most in a month since April 1970.
The forward price/earnings ratio of the MSCI All Country World Index—which tracks performance across 23 developed and 24 emerging markets—has fallen to around 18, its lowest level since early 2016.
On this day in 1929, the Dow Jones Industrial Average had one of its best days ever, rocketing up 12.3% to 258.47 as John D. Rockefeller, Sr. announced: “There is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week.” The Dow went on to lose 84% more of its value before bottoming out on July 8, 1932.
We all know that trees don’t grow to heaven. We all know that markets fluctuate. We all know that bad stuff will happen in markets and that recessions are inevitable.
But this waterfall market drop of some 10% this month is a real doozy.
If we go back to the market collapse of October of 2008, a horrific event we all remember, think for a moment what preceded it. Lehman Brothers had collapsed, Fanny and Freddie – two gargantuan mortgage providers – had failed and were in Federal receivership, Merrill Lynch, Countrywide, and many other large banks had failed. The US and the world’s financial engines were imploding. And that month, the US stock market fell about 10%.
This October, I walk out my back door, I look up into a cloudless night and a starry sky. I hear no noise of war or chaos, armies are not marching in the street, financial markets are sound, our unemployment rate is 3.7%, interest rates on 30-year US Treasuries are about half the historic, long-term average for bonds of that maturity, inflation is modest, and our economy grew 4.2 % in the spring quarter and 3.5% in the summer quarter. Are there troubles at home and around the world? Yes. But nothing resembles the shambles October of 2008. Yet our markets have replicated the collapse of ten Octobers ago.
Is a recession about to envelop us? I don’t see it, because such data points as I mention in the preceding paragraph do not accompany the entrance of recessions. However!!! confidence is the life blood of investing, and events like we’ve seen this month do terrible damage to investor confidence.
If you are scared over what’s happened this month, then you’re human. This is a scary time for any investor except for fools, madmen, and the most hardened of experienced investors who knows, every day, that the cure for low prices is low prices.
Most market falls have some explanations that offer some understanding as to why things are falling apart. Oct. of 2008, we’ve covered above. The summer and fall of 2011 when the S&P fell about 20% could be attributed to America’s credit rating being downgraded. The summer of 2015, there was the China scare.
But now? I guess all I can say is “Stay tuned,” as if this is a television drama which has been written for weekly viewers who enjoy terror.
But this too shall pass. Patience gains all. I hope my readers and investors will not do anything precipitously that would “book” the kind of losses we’ve experienced only on paper to this point. For, as of today, unless you have sold into this madness, you haven’t lost anything.
God bless us all.